Russia's South Stream pipe shores up hefty contracts

Russia's massive South Stream pipeline project for transporting gas to southern Europe took a big step forward today (29 January) as three companies secured €1 billion worth of contracts to supply part of its offshore section.

The 2,400 km (1,500-mile) pipeline, which Russian state-controlled gas producer Gazprom says will be fully operational by 2018, would be able to supply almost 15% of Europe's annual gas demand, pumping Russian gas through the Black Sea into southeastern Europe.

It would bypass Ukraine, with whom Russia has had several gas transit disputes in the past years.

The project has been frequently put into doubt over legal conflicts with the European Union and its economic viability.

But South Stream made a big step forward on Wednesday after Europipe, OMK and Severstal secured the contracts to supply a first subsea section of the pipeline.

Germany's Europipe will supply half of the pipes, Russia's OMK will deliver another 35%, and Severstal's Izhora Pipe Mill in Russia will provide the remaining 15%.

The contracts announced on Wednesday are for the first of four parts of the subsea section of South Stream.

"The pipeline delivery is planned to begin in the summer and to last until mid-2015," Gregoire Richez, commercial director of South Stream Transport, told Reuters, adding the tender for pipeline supply for the next stage was under way.

Construction of the entire subsea stretch is expected to cost around €17 billion. Richez did not say when the tender for the next stage would take place.

The project, seen as Russia's response to EU attempts to find alternative gas supplies, will transport 63 billion cubic metres of gas per year through the Black Sea, Bulgaria, Serbia, Hungary and Slovenia into Italy.

The pipeline will be ready to pump 15.75 billion cubic metres of gas to Bulgaria by the end of 2015. The contracts cover production of over 75,000, 12-metre steel pipe sections for the first undersea section.

The shareholders in South Stream are Gazprom, France's EDF, Germany's Wintershall, and Italy's Eni .

Background

South Stream is a Russian project for a natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy [see map]. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI.

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